Intellectual Property as an effective
investment class
IP underpinning value of technology companies
Traditionally, 4 types of Intellectual Properties are known, these being patents, trademarks, copyrights, and trade secrets. Another less followed is industrial design, and I would like to argue that business models and know-how in trade are forms of intellectual property (IP), though not registrable, but equally effective in generating commercial value.
For the purposes of this document, let us remain within the realm of traditional forms of IP, as they pertain to value creation and keeping value over time.
Therefore as an efficient investment vehicle.
“Alternative investments are a popular asset class for their consistent above-benchmark returns, as well as for the role they play in facilitating sustainable economic growth and job creation across the African continent.” Rojie
Kisten,, OLD MUTUAL — CAPITAL RAISING
Unlike most asset classes, the value of intellectual property can increase indefinitely. If we take brand value as a consequence of copyright and/or the trademark form of IP, we have it that IP is largely determined on how well the company does.
According to the Forbes list of The World’s Most Valuable Brands, Apple is valued at a whopping $205.5 B, having increased by 12% in value from the previous year. The greatest increase in brand value is that of Amazon to the tune of 37% from the previous year, valued at $97 B on the same list.
On the very same list, H&M, the Swedish multinational clothing-retail company, had lost 12% in brand value over the 12 month term.
Intellectual Property allows for trademarking of significant inventions and innovations. New to the world technologies that can be protected and have great use in the market and so being of value.
Unlike other investment asset classes, IP can be leveraged in a multitude of ways. Let’s take the example of a building.
It can only house things. Income and value is based on being able to house something, either in rental income or capital gain at sale of the asset. No other way of generating income.
A building cannot be occupied and rented out at the same time.
Intellectual Property on the other hand, does have this feature. One is able to utilise or commercially exploit in a certain territory while at the same time, licensing the same IP to another entity in another territory. Essentially earning rental income on the IP as well as commercial income.
Looking at the key drivers of this argument — Intellectual Property can increase at incredible rates, it offers a significant margin of safety (within the confines of value due to utility and market forces). It can be leveraged far more efficiently than traditional investment classes.
As the world moves from industrial economic theory to intellectual economic theory, the importance and relevance of IP will become greater. As an asset class to invest in, it will hold value for longer periods of time.
Will increase at a sustainable rate and offer protection from competitors. It is a sound alternative investment class.
